ATO $882m loss to News Corp ‘tip of the iceberg’

The Australian Taxationi Office’s decision not to appeal a federal court decision in favour of Rupert Murdoch’s News Corp last July, which resulted in an $882 million payout between September and January, has come under scrutiny. Photo: Getty

Nassim Khadem

The Australian Taxation Office says its $882 million loss to Rupert Murdoch’s News Corporation may just be the tip of the iceberg.

Tax Commissioner Chris Jordan and deputy Neil Olesen told a parliamentary inquiry the Tax Office has recently lost even more valuable cases against individual taxpayers.

“There are others bigger than this one,” Mr Olesen told a parliamentary hearing on Friday. “There were significant amounts at stake that we were also unsuccessful with through the courts.”

With tax revenue and the national budget under pressure, the Tax Office’s decision not to appeal a federal court decision in News Corp’s favour last July, which resulted in an $882 million payout between September and January, has come under scrutiny.

Mr Jordan defended the Tax Office’s stance, saying advice from senior counsel was that it wouldn’t succeed in a High Court challenge.

He conceded at Friday’s hearing that it was mentioned in a brief to then assistant treasurer David Bradbury, although not in detail.

“If we push these things too far we get criticised . . . for being too pushy in our litigation,” Mr Jordan said.

A minute was sent to Mr Bradbury “simply saying that this case had been lost. It did not request any action and there was no further response,” Mr Jordan told the inquiry.

The inquiry also revealed a massive oversubscription for the ATO’s voluntary redundancy scheme. Three times more staff than it had hoped expressed an interest in leaving.

The office needs to cut 900 jobs from a national workforce of 25,000. It expects 400 to go through natural attrition and 500 to be shed through redundancies.

Mr Jordan is reviewing 2187 expressions of interest from staff eager to quit.

“Clearly that is in excess of our target of 500,” Mr Jordan said.

“They are from across the board. Having expressed an interest does not mean that it is automatic.”

Under Mr Jordan’s leadership the ATO is embarking at cultural change at the organisation, including bringing in more staff from the private sector, including the recent appointment of former tax lawyer Andrew Mills as a deputy commissioner.

Mr Jordan conceded the staff cuts, which could rise further in the May budget, had made the change process harder. “Yes, this will make cultural change more difficult,,” he said.

“In an environment in which our budgets are being reduced, that will probably make the pace of change slower and might make the ambitious nature of some of our change program less easy to implement over time,” he said.

Mr Jordan is focused on maintaining the revenue collection core function of the Tax Office but warned if there are further job cuts in the May budget, performance could suffer.

“It might impact on service standards. It might impact the publication and education material we do for the community,” Mr Jordan said.

“It is hard to put your finger on the point where revenue might suffer, but in this first round we feel we can maintain the core function of revenue collection.”

New approach to disputes

The ATO has adopted a new approach to resolving disputes under Mr Jordan. As well as appointing former tax lawyer Andrew Mills as a second commissioner, it has recruited 19 senior audit managers from the private sector.

“These people have been running major audits on large Australian ­companies across financial services, energy, real estate – the more complex industries in terms of the issues,” Mr Jordan said.

The Tax Office was looking to “clear up the backlog” of old cases and had a “very strong focus to settle or go to court and stop just playing” games, he said.

Since separating the audit team and the independent review function, four out of 10 cases had been settled in favour of the taxpayer. This new methodology has been trialled among small taxpayers and will be expanded to larger GST matters.

Inspector-General of Taxation Ali Noroozi told the committee that while it was a “step in the right direction”, he had recommended a separate appeals area be established.

Mr Noroozi said Mr Jordan’s plan differed to his suggestion in two ways. First, the review function happened before the objection stage, rather than after it.

Secondly, the pilot was not directed at all taxpayers. “The suggestion we made called for there to be a separate appeals area from the moment that an objection is made and for it to be dealt with in that separate appeals area,” Mr Noroozi said.